[Research] A study on investment strategy2015-04-01Hit:1255
- WriterKGSF Office
On March 13th, 2015, the 2nd KOICA Group presented their independent research papers which they had been working on for the last few months. Their research was based on the knowledge gained at KAIST and Korea and how they would apply it to their work and home countries. There were a few that went into great depth to cover what they learned in specific fields. Among the papers that were well-written and researched, we would like to highlight research in the investment area conducted by Mr. Nurbek Darvishev (2013, Deputy Chief, Ministry of Finance of the Republic of Uzbekistan)
-Subject: Efficient Market Hypothesis in KOSPI stock market: Developing an investment strategy
-Written by: Nurbek Darvishev
-Advisor: Kyoungwon Seo
According to the efficient market hypothesis (EMH) stock prices already reflect all available information. This means that investors should not expect excess return from obtaining new information. Momentum strategy is an investment strategy, which tries to generate excess returns by buying past winner stocks and selling past loser stocks. In this paper, KOSPI stock market is analyzed for market efficiency during the 2000-2015 through developing and testing price momentum and alpha momentum strategies.
The results indicated that simple price momentum strategy is not able to generate any excess return, which is consistent with previous academic studies conducted for the Korean stock market. However, implementing the novel alpha momentum strategy, which ranks stocks according to their CAPM alpha in contrast to their past returns, reveals us economically and statistically significant returns over all observed holding periods. This research will implement traditional Capital Asset Pricing Model (CAPM) in estimating the alphas and running regressions. Therefore, along with standard assumptions of the model, this paper accepts that there are no market frictions, no transaction costs as well as no limits on short-selling. (click here to read the full paper)